Forget your fears by mitigating the challenges faced by franchisees
There are many challenges faced by franchisees, not least of which is the fear of investing. This is natural. And, if you’re truthful, it’s a fear you’ve had before. You’re afraid of losing money. You’re afraid of making mistakes. You’re afraid of a saturated market, or that you’ll be ripped off by the franchisor.
While natural, these challenges faced because of your fear will not materialise if you have taken the right steps to buy a franchise. So, what are the challenges that cause you those last-minute nerves and cold feet? And how do you beat them? How do you improve the chances of success and mitigate the risk?
The seven most common fears of first-time franchisees
You started your journey toward owning a franchise business full of enthusiasm. And quite rightly. When you buy a franchise, you invest in a known business model.
As an already proven business, if you follow the system of the franchisor, you could make substantial profits. You can’t say this when opening your own new business. When you start a business from scratch, you don’t know if your product will sell or if you’ll make enough money to even survive. Around a quarter of startups fail in their first year, and only half make it into their fifth year. The failure rate of franchises is much lower than this.
Yet, many would-be franchise investors are kept awake at night before committing. You don’t need to be a fearful franchisee. Not if you understand the fears you’ll face and take the following precautions before signing on the dotted line.
Franchisee fear #1: The fear of losing your investment
You’ve worked hard for your money. Now you want to put it to work. But is a franchise the best way to invest? What if you buy a donkey? Are you risking your 401(K)? You’re likely to be investing substantial capital. Money you don’t want to and probably can’t afford to lose.
To mitigate this fear:
Make sure that you interrogate the franchisor’s accounts and claims. Do your local market research. Consider the competition where you are setting up business. Think about who your customers are, and if they will pay the prices for products to keep you afloat and in profit.
Franchisee fear #2: You’ll be sunk by poor cash flow
Most early business failures are caused by poor cashflow. You don’t have the cash coming in to pay your overheads and for your supplies.
The franchisor should be able to show you detailed financial plans, turnover projections, and cash flow forecasts. But you should never rely on these solely. Have them reviewed by an expert. Conduct your own research. Answer questions such as:
- Are the salary forecasts realistic?
- What about the cost of buildings, equipment, and supplies?
- How would an increase in any of your outgoings affect your bottom line, and is there an adequate buffer in place?
- Do you have adequate cash in reserve to see you over the first few tricky months?
Be conservative in your costings and revenue forecasts – it’s much better to be surprised on the upside than the downside.
Franchisee fear #3: I’m not experienced enough, and I’ll make big mistakes
This should never be a concern for you – not if you have considered the type of franchise you should invest in and matched it to your skillsets. When you do this, you can rest easy that the type of franchise you are buying is most suited to you, your ability, and your financial and lifestyle goals.
Franchisee fear #4: The fear of making mistakes
Whether through lack of technical skills, personal skills, or simply making a poor judgement call, you’re scared of making costly mistakes. This is, after all, your first franchise, and perhaps your first business.
The secret here is to make sure that the franchisor provides training and support. Speak to the franchisor and make sure you know what support they offer if you do get into trouble. You may be surprised at just how supporting franchisors can be, but, then again, you shouldn’t be. After all, it is their trademark you are trading on.
Franchisee fear #5: The franchisor rips you off
Okay, what we’re really talking about here is investing in a franchise backed by misleading paperwork. This is rare, but it does happen. Which is why we always recommend that you let a couple of experts look over all the paperwork. An accountant as well as a lawyer who is experienced in franchise law should suffice. And don’t stop there – there is nothing quite like your own due diligence to put your mind at rest.
Franchisee fear #6: You’re entering a saturated market
You love the product. You love the concept. You love the numbers, and you love the training and support the franchisor promises. But you’re concerned that your competition will kill you.
You know how to nix this fear? Do your research. Look at the business, its potential, the sector it is in, and the location in which you plan to run it. Learn about competitors in the area, what their offer is, and what the franchise’s USP is.
Just because there are other businesses selling the same product or service as the franchise in which you’re interested doesn’t mean you won’t be successful. Indeed, it could mean that there is plenty of demand to sustain your business.
Franchisee fear #7: Fear of the unknown
This is, perhaps, the most irrational of franchisee fears. If for no other reason than life is a continual merry-go-round of unknowns. Do you fear for your job or livelihood because the economy might turn down? Or because regulations change and affect the company you work for?
You may consider a few what-if scenarios and plan for the worst in your day-to-day life. Like holding a few months’ spending in reserve in case you’re laid off. But overall, even though you know life throws curve balls, you get on with things. That’s the way to approach becoming a franchisee.
Summing up
If you do the following, then you should sleep easy at night:
- Carry out your due diligence
- Have experts on your side
- Understand the franchise type and the business that you are entering
- Have the skillset to make a success of your franchise
- Ensure you benefit from support and training
- Practice good financial planning
Sure, you’ll be nervous – but you won’t be filled with fear.
Your franchise success depends upon the help and advice you receive. Book a 30-minute free consultation, and let’s get the ball rolling. And eliminate fear by employing the right strategies.